CALGARY — A deal announced Friday by Brion Energy Corp. with a northern native community is expected to kick-start a stalled 250,000-barrel-a-day oilsands project and permit the flow of $1.3 billion to its Calgary-based parent company.

Stock in Athabasca Oil Corp., which owns Brion with partner PetroChina, jumped 90 cents or 11.5 per cent to close at $8.74 on the Toronto Stock Exchange.

In a joint news release Friday afternoon, Brion and the Fort McKay First Nation said the band has agreed to drop its court appeal on constitutional grounds of the project’s August regulatory approval.

No details were given in the release, nor would spokespeople give specifics, citing a non-disclosure clause in the agreement.

But Alvaro Pinto, director of sustainability and lead negotiator for the band, said the deal doesn’t restrict how Brion develops the project, nor is there a requirement for a buffer zone between the project and the Moose Lake reserve lands.

“There are limitations in terms, not of the development itself, but there are some terms that help to protect the area,” he told the Herald in an interview.

“There isn’t any commitment in terms of a no-development zone but, as I said, there are strong commitments in terms of environmental protection which we didn’t have before.”

The Alberta Energy Regulator approved the Dover thermal project in August after rejecting a request from the band for a 20-kilometre no-development zone south of its Moose Lake reserve lands.

It ruled Dover’s development would have “little if any impact” on neighbouring lands but the zone would exclude 1.2 billion to 1.4 billion barrels of bitumen from being produced.

The band then filed an appeal on the grounds that the AER had failed to consider its constitutional treaty rights in its decision and the Alberta Court of Appeal agreed to hear it in March.

Meanwhile, the AER approval went to the Alberta cabinet for endorsement, where it has remained in limbo.

Pinto said the band reserves its right to protect its constitutional treaty rights in future while conceding withdrawing its appeal in the current case leaves the issue unresolved.

Brion spokeswoman Kristi Baron said in an interview no details of the agreement are being revealed, specifically refusing to say whether Brion has agreed to restrict development or offer any additional financial or economic benefit to the band.

The agreement was signed in the Fort McMurray area Friday by Zhiming Li, Brion president and chief executive, and Chief Jim Boucher of Fort McKay. Neither was available for interviews.

“As good neighbours, Brion is committed to developing the lease in an environmentally sound manner, while delivering social and economic benefits for the local community,” said Li in a joint news release.

“Reaching this agreement with Brion shows it’s possible to protect our traditional territory while partnering with those who work in the area,” said Boucher.

Analysts Mark Friessen of RBC Dominion Sercurities and Matthew Taylor of National Bank Financial said in notes the deal offers relief for Athabasca, headed by president and chief executive Sveinung Svarte.

“While we believe a positive settlement of Dover has largely been priced into the stock, this is positive in that it ultimately should lead to receipt of the Dover proceeds of $1.32 billion which improves the company’s financial liquidity,” Friesen wrote.

“We expect that receipt of the Dover proceeds would likely result in an increased capex program in H2/14, possibly making the company more attractive as a JV partner in its Duvernay process.”

In December, Athabasca unveiled a $460-million 2014 budget with $348 million earmarked for oilsands and just $106 million on conventional light oil plays.

“Athabasca now has line of sight to exercising the put with PetroChina and this alleviates go-forward funding concerns,” agreed Taylor, adding clarity on the issue could help Athabasca land joint venture deals in oilsands and in its conventional Duvernay acreage.

Final OK of the Dover project is expected to trigger a put/call option allowing 60 per cent partner PetroChina to buy out Athabasca’s 40 per cent stake. Brion is the operating company.

The delay has created a capital shortfall for Athabasca which is over half finished building its $565-million, 12,000-bpd Hangingstone thermal project.

Like Hangingstone, Dover is to use steam-assisted gravity drainage technology and is proposed to grow through multiple phases. The first 50,000-bpd phase would cost about $2.5 billion to build, Brion said in its AER application.

dhealing@calgaryherald.com

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